Tuesday, October 02, 2007

South Bay-Beach Cities: Open Houses are Hot!

Last weekend I previewed property on Saturday and showed homes on Sunday. We looked at 6 properties. Most of the six had Open Houses and were very busy. The same was true on Saturday.. there were not as many Open Houses but most of them had a lot of people.

In the last two weeks Buyers appear to have returned to the market. Many are waiting to see if rates drop but they are looking at houses. The people visiting open houses are no longer the neighbors out for an afternoon stroll or looking for decorating ideas. These people are looking for property.

Prices have been dropping in the last few weeks. Interest rates may be improving and the credit markets seem to have settled down. These are all reasons that buyers may be returning to the market. The fourth quarter is usually a good time to buy. People who have to close escrow by the end of the year are ready to negotiate price and rates are often a bit lower then in the summer.

It was this time last year when the market picked up after a long period of non-activity. The big question is whether or not Buyers perceive value to have returned to the market. If they do then they will buy... if they don't then a lot of homes will continue to sit on the market.


Anonymous said...

kaye, i can give you one buyer's perspective.

1. prices in MB have historically gone up at 7 to 8% per year. that's the LT growth rate you get if you measure from the peak in 89/90 to the peak in 05/06. right now, prices are roughly 30% above where the long-term trend line suggests we should be. moreover, it's not just MB. it's the westside, malibu, palos verdes, san fran, etc. given this reality, we think it is prudent to be cautious.

2. renting is much more compelling than buying at the upper end of the market ($2-4m). we rent a <5 year old house in the sand section with tons of custom upgrades for something around $6-9k per month. based on the comps on our street, the all in cost of owning this house would be $18,000/month, once you add in property taxes, a maintenance accrual and the opportunity cost on our equity.

3. based on the rent vs buy math, the break-even rate of appreciation which would tip us in favor of buying is 5%. while everyone is entitled to their opinion, ours is that the likelihood that MB home prices appreciate at a 5% rate from current levels over the next 5-7 years is low.

4. unlike some observers, we don't necessarily think the market crashes. instead, we think that prices are flat to down a few % over the next 5 years. we feel like we have the luxury of being patient.

5. we're not looking to make money on our house. it's a place to live, not an investment. if it can keep up with inflation, we will be happy. but we're not willing to throw away a million dollars either by buying this close to the peak.

6. we think that 08 will be a decent year to buy. we think 09 and 10 could potentially be very good years. rates will be higher, there will be fewer trade-up buyers in the market, and the hybrid arms originated in 02-04 at record low rates will be reseting. we think that's when the full brunt of the downturn will begin to be felt in the south bay (as well as other desirable westside neighborhoods).

Kaye Thomas said...

Anonymous 8:54,

Thank you for sharing your perspective.. I tend to agree that prices will be relatvely flat over the next few years as opposed to a huge decline in values. I think the market will continue to be rather slow unless we get a 1/2 point drop in fixed rates If that happens we will see an increase in volume but perhaps not much in price.

There is a lot of misinformation about buyers in our market.. there are more qualified buyers who have money then many realize. They are doing what you are doing.. waiting and watching to see how the market is faring before deciding to buy.. as you note many have a lot of patience and don't need to buy immediately.

Some will decide to buy by the end of the year if they see value in that position.. others will wait until 2008 and then test the market. Much will depend on how quickly they need to purchase a property and where rates line up.

What is making this market.. meaning the Beach market .. so interesting right now is the number of high priced properties that are coming on the market and selling fairly quickly. A Strand home in Hermosa that was on the market a few months ago recently came back on and sold in less then 2 weeks at over $8m. Two Strand townhomes in the North end sold to the same buyer for a total investment of about $8m. The higher ticket homes are definitely moving.. many never hit the MLS.

The fact that upscale buyers are not afraid of spending a lot of money for homes in our area is an indication that they perceive this area to be one that will maintain value over the long run. These guys didn't make money be being stupid about where they invest.

Finally I think it will be the mid-level area of the market.. The $2.2-$3.3 range that will face the biggest challenges in our market.. homes priced below will continue to move as will those in the upper price ranges.

Brian Brady said...

Is it just me or does $6-9K/month sound like an awfully big range?

I'm pretty careful so I guess I'd want to know where that $3 grand went

Kaye Thomas said...

Brian- The difference in price, as you know, is based on location and view.. Guess it depends how much location matters and how important the $3k is in your budget..